How the city arrived at the proposed rates

* Editor’s note: This is the last in a series of stories examining the proposed Woodland-Davis joint surface water project, including project specifics, the city of Davis’ water utility in general and arguments for and against Measure I in the March 5 mail-only election.

Once the Water Advisory Committee had picked the Woodland-Davis surface water project in October as the preferred option to deliver surface water to Davis, the group then took aim at the water rate structure that the city would need to pay for it.

City staff and the city’s hired rate consultant, Bartle Wells Associates, presented to the WAC several industry-standard rate models to pick from.

Each closely resembled the way the city currently bills its residents for water: with a fixed rate based on meter size and a variable rate based on consumption. These types of rate models were, in their opinion, industry-standard and compliant with Proposition 218. That voter-approved measure sets the state law for how a public agency can extend, impose or increase utility fees, including for water.

One rate model that Bartle Wells suggested was a three-tiered inclining block rate structure that charges customers more for water when they reach a certain level of usage, in addition to the base fixed fee determined by meter size.

Bartle Wells originally recommended that the first tier cover 1 to 10 ccf of usage, the second to cover 11-29 ccf and the third 30 and over, with the cost per hundred cubic feet (ccf) rising as use climbed up the ladder.

The second option again included a base fixed fee, but then a uniform-block rate for the variable portion of the rate structure. Under that structure, regardless of how much water a user consumes, the cost per ccf stays the same.

But two water committee members — Frank Loge, a UC Davis professor of civil and environmental engineering, and Matt Williams, an El Macero resident — found the standard models flawed.

“While meter size-based fixed rates seem proportional and fair at first sight, they are a simplistic, indirect and inexact measure of proportionality,” the pair wrote in a handout for a presentation they gave to the WAC in September.

“Meter size-based rate schemes are … based on the potential demand, rather than the actual demand a consumer places on the (water) system.”

The two determined that any household of the same meter size pays the exact same fixed fee regardless of how much water they use, which is disproportionate considering the different loads various households put on the city’s water infrastructure.

“Thrifty and extravagant water users pay the same fixed fee, but derive entirely different benefits from the system they fund with their fixed fees,” the committee members wrote. “The thrifty user’s fixed fees (actually) cover some of the fixed costs the wasteful user imparts on the system, in effect subsidizing the water waster.”

Loge explained it by saying that “roughly half of the people in Davis are subsidizing the water use of the other half.”

A new fixed rate

Loge and Williams developed a rate structure that broke down a customer’s water bill even further to appropriately assign fixed costs based on consumption. Their model, like the industry standard, charged a base fee determined by meter size and a variable fee based on consumption. But unlike traditional rate models, the structure charged a third fee based on historical or previous usage.

To calculate the third consumption-based fixed rate, the city would look at how much money it needed to receive from its customers to pay off its own fixed water costs and then divide that number, proportionally, among all water customers based on how much water they used the previous year.

So if a water customer made up 1 percent of the city’s overall water usage, it would pay 1 percent of the city’s fixed revenue requirement.

The rate model also encouraged conservation, as ratepayers would know that they could potentially reduce the cost of their water bill next year by using less.

It was, as many in the city and on the water committee came to agree, the fairest way to bill ratepayers for water.

Though city staff were hesitant to consider the untested rate structure, they conferred with attorneys and with Bartle Wells to see if the model could work and also if it would pass muster under Prop. 218 proportionality. (The rates are being challenged by a class action lawsuit filed Thursday in Yolo Superior Court.)

The city describes the consumption-based fixed rate model this way: “The supply-charge fee is calculated by using the projected annual revenue requirement related to water supply and treatment and dividing it by the total projected six-month peak period (May through October) water use of the water utility to produce a per-ccf rate.

“The individual fee per customer is then calculated by taking the per-ccf rate and multiplying it by the individual customer’s prior year’s six-month peak period water use. Each year, this CBFR amount is recalculated based on an individual’s actual water use during the prior six-month May-through-October peak consumption period. So for Jan. 1, 2015, the May-October of 2014 total volume will be used. The supply charge will comprise approximately 67 percent of an average monthly water bill.”

While perhaps complex, the city felt comfortable enough that it could print this rate structure on Prop. 218 notices that are sent to property owners to inform them of pending rate increases.

The notices must include the proposed rate structure and an equation for customers to calculate their future water bills. And with the revised Loge-Williams model, the city could accomplish this.

So, with the city’s approval, the CBFR and two Bartle Wells industry-standard rate structures were all viable options for the WAC to pick from.

Six-hour debate

In November, the committee held two three-hour meetings to debate which rate structure it should recommend to the City Council.

Some felt they should just continue on with industry standard, that the CBFR model was too complex to explain or would be too vulnerable to legal challenge.

But then, the committee was reminded, this is Davis.

“Nothing about this project we’ve done is innovative,” David Purkey, a WAC alternate, said at the meeting. “(But) this is Davis. This is something for us to do, something innovative, and if someone is going to innovate this type of reform … I think that we should be the ones to do it.”

After six hours of debate, the committee recommended CBFR to the council on an 8-2 vote.

It appeared the bold move would be short-lived, however, as the council rejected the recommendation, instead asking the WAC to pick one of the standard structures for simplicity’s sake.

But the WAC stood firm and again voted to recommend the CBFR model.

The council eventually found a compromise. At its next meeting, the council determined that if it was going to go with CBFR, it couldn’t implement it immediately without warning customers that their previous usage would affect their current water bills.

Instead, the council elected to approve an inclining-block rate tiered structure — with the first tier set at 18 ccf per month to accommodate larger families — for the first two years of the rate schedule, and then implement the CBFR model with a uniform block variable rate starting in 2015.

This rate schedule would allow the city ample opportunity to educate the public on how their rates would be calculated in the future, based on historical consumption.

On Jan. 15, the council unanimously approved the rate structure.

Prop. 218 notices

The city mailed Prop. 218 notices this week that explain how to calculate future water rates based on the rate models the WAC and City Council selected. Property owners have until March 19 to protest the five-year rate schedule the council signed off on in January.

The council will conduct a public hearing that night at which it will adopt the rates unless more than half of the roughly 16,500 property owners in Davis lodge protests.

Under the hybrid-rate model, the average consumer using about 15 ccf of water per month would pay $35.78 monthly starting May 1.

By Jan. 1, 2015, a single-family home user consuming 15 ccf per month, with a peak six-month usage of 120 ccf, would pay $61.51 per month.

By Jan. 1, 2018, a single-family home user consuming 15 ccf per month, with the same peak usage of 120 ccf, would pay $98.27 per month.

— Reach Tom Sakash at [email protected] or 530-747-8057. Follow him on Twitter at @TomSakash

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Tom Sakash

Tom Sakash covers the city beat for The Davis Enterprise. Reach him at [email protected], (530) 747-8057 or @TomSakash.